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Bond-Buying Puzzle Still Is Unsolved

By

Richard Barley

December 13, 2011

How does quantitative easing work? Nearly three years after the Federal Reserve and Bank of England started buying government bonds, the answer still isn't clear.

Quantitative easing, also known as QE, may be subject to diminishing returns in reducing yields, research published by the Bank for International Settlements suggests. But QE's usefulness as a policy tool may continue to trump fears about its waning effect. In a crisis,...